ASSIGNMENT OF SAM

SUBMITTED TO: DR INDRISH KAUR

SUBMITTED BY: ROLIKA SETH SWATI RATHORE DINKAR PATHAK

ACKNOWLEDGEMENT

Accomplishment of any task necessarily depends upon the willingness and enthusiastic contribution of time and energy of many people. From the starting till the completion of this project, there are many people whose assistance all my efforts would have been fruitless. I, therefore acknowledge all who generously helped me by sharing their time, experience and knowledge with me without which this project would have never been accomplished. I must express my gratitude to DR Indrish Kaur whose perceptive guidance, constant encouragement, constructive criticism and affection were the light of guidance during the tenure of my work. Finally I would like to state that the project not only fulfilled an academic requirement, but would also help me in future endeavors in the years.

ABSTRACT

INTRODUCTION OF FMCG

Fast moving consumer goods (FMCG) -or Consumer Packaged Goods (CPG) are products that are sold quickly and at relatively low cost. Examples include non-durable goods such as soft drinks, toiletries, and grocery items. Though the absolute profit made on FMCG products is relatively small, they generally sell in large quantities, so the cumulative profit on such products can be substantial.

SCOPE
The term FMCG refers to those retail goods that are generally replaced or fully used up over a short period of days, weeks, or months, and within one year. This contrasts with durable goods or major appliances such as kitchen appliances, which are generally replaced over a period of several years. FMCGs have a short shelf life, either as a result of high consumer demand or because the product deteriorates rapidly. Some FMCGs such as meat, fruits and vegetables, dairy products and baked goods are highly perishable. Other goods such as alcohol, toiletries, pre-packaged foods, soft drinks and cleaning products have high turnover rates. The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. While the latter has been crowded by a large number of local players, competing on margins, the former has varied between a two-player-scenario to a multi-player one. Unlike the U.S. market for fast moving consumer goods (FMCG), which is dominated by a handful of global players, India's Rs.460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home made products. This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products. However, successfully launching and growing market share around a branded product in India presents tremendous challenges. Take distribution as an example. India is home to six million retail outlets and super markets virtually do not exist. This makes logistics particularly for new players extremely difficult. Other challenges of similar magnitude exist across the FMCG supply chain. The fact is that FMCG is a structurally unattractive industry in which to participate. Even so, the opportunity keeps FMCG makers trying.

At the macro-level, over the long term, the efforts on the infrastructure front (roads, rails, power, and river linking) are likely to enhance the living standards across India. Till date, India's per capita consumption of most FMCG products is much below world averages. This is the latent potential that most FMCG companies are looking at. Even in the much-penetrated categories like soaps/detergents companies are focusing on getting the consumer up the value chain. Going forward, much of the battle will be fought on sophisticated distribution strengths.

Indian FMCG Sector

The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1 billion. Well-established distribution networks, as well as intense competition between the organized and unorganized segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value chain. It has been predicted that the FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. Most of the product categories like jams, toothpaste, skin care, shampoos, etc, in India, have low per capita consumption as well as low penetration level, but the potential for growth is huge. The Indian Economy is surging ahead by leaps and bounds, keeping pace with rapid urbanization, increased literacy levels, and rising per capita income. The big firms are growing bigger and small-time companies are catching up as well. According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs, and the balance by Indian companies. Fifteen companies own these 62 brands, and 27 of these are owned by Hindustan Lever. Pepsi is at number three followed by Thumps Up. Britannia takes the fifth place, followed by Colgate (6), Nirma (7), Coca-Cola (8) and Parle (9). These are figures the soft drink and cigarette companies have always shied away from revealing. Personal care, cigarettes, and soft drinks are the three biggest categories in FMCG. Between them, they account for 35 of the top 100 brands.

S.No 1. 2. 3. 4. 5. 6. 7.

Companies Hindustan Unilever Ltd. ITC (Indian Tobacco Company) Nestl India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India

FMCG Companies HUL Dabur India Colgate Godrej Marico Godrej Ind P and G Gillette India Emami Jyothy Labs

Sales/Turnover 20,601.56 2,417.91 1,770.82 1,088.01 1,921.85 880.97 645.02 588.84 651.01 350.85

Profit 2,496.45 373.56 290.22 161.55 142.12 19.33 131.41 117.37 67.36 40.88

Total Assets 2,483.46 877.17 220.98 599.8 676.21 1,628.10 346.64 425.4 324.2 352.51

The companies mentioned are the leaders in their respective sectors. The personal care category has the largest number of brands, i.e., 21, inclusive of Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of the personal care category. Cigarettes account for 17% of the top 100 FMCG sales, and just below

the personal care category. ITC alone accounts for 60% volume market share and 70% by value of all filter cigarettes in India. The foods category in FMCG is gaining popularity with a swing of launches by HLL, ITC, Godrej, and others. This category has 18 major brands, aggregating Rs. 4,637 crore. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations like softies in ice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by both GCMMF and Godrej Pillsbury. This category seems to have faster development than the stagnating personal care category. Amul, India's largest foods company has a good presence in the food category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also ranks in the top 100 FMCG brands, dominates the biscuits category and has launched a series of products at various prices.

SWOT ANALYSIS
Strengths Low Operational Costs Presence of established distribution networks in both urban and rural areas Presence of well-known brands in FMCG sector Weaknesses Lower scope of investing in technology and achieving economies of scale, especially in small sectors Low exports levels Me-too products, which illegally mimic the labels of the established brands These products narrow the scope of FMCG products in rural and semi-urban market Opportunities Flourishing rural market Rising income levels, i.e. increase in purchasing power of consumers Large domestic market- a population of over one billion Export potential High consumer goods spending Threats Removal of import restrictions resulting in replacing of domestic brands Slowdown in rural demand Tax and regulatory structure

PEST ANALYSIS

Political (incl. Legal) Environmental regulations and protection

Economic Economic growth

Social Income distribution Demographics, Population growth rates, Age distribution Labor / social mobility

Technological Government spending Industry focus on research

Tax policies

Interest

rates

&

monetary policies trade Government

technological effort New inventions and development Rate transfer of technology

International

regulations and restrictions spending Contract enforcement law Unemployment Consumer protection policy

Lifestyle changes

Work/career and leisure Life cycle and speed of Employment laws Taxation attitudes Entrepreneurial spirit Government organization attitude Exchange rates Education technological obsolescence Energy use and costs (Changes Competition regulation Inflation rates Fashion, hypes Information Technology Political Stability Stage of the business cycle Safety regulations Consumer confidence Health consciousness & welfare, safety Living conditions (Changes in) Mobile Technology feelings on (Changes in) Internet in)

FEATURES OF FMCG INDUSTRY

DISTINGUISHING FEATURES OF INDIAN FMCG BUSINESS: FMCG companies sell their products directly to consumers. Major features that distinguish this sector from the others include the following: 1. Design and Manufacturing y Low Capital Intensity - Most product categories in FMCG

Require relatively minor investment in plant and machinery and other fixed assets. Also, the business has low working capital intensity as bulk of sales from manufacturing take place on a cash basis. y Technology

Basic technology for manufacturing is easily available. Also, technology for most products had been fairly stable. Modifications and improvements rarely change the basic process. y Third-party Manufacturing

Manufacturing of products by third party vendors is quite common. Benefits associated with third party manufacturing include (1) Flexibility in production and inventory planning; (2) Flexibility in controlling labor costs; and (3) Logistics - sometimes its essential to get certain products manufactured near the market. 2. Marketing and Distribution marketing function is sacrosanct in case of FMCG companies. Major features of the marketing function include the following: (1) High Initial Launch Cost - New products require a large front-ended investment in product development, market research, test marketing and launch. Creating awareness and develop franchise for a new brand requires enormous initial expenditure on launch advertisements, free samples and product promotions. Launch costs are as high as 50-100% of revenue in the first year. For established brands, advertisement expenditure varies from 5 - 12% depending on the categories.

(2) Limited Mass Media Options The challenge associated with the launch and/or brand-building initiatives is that few no mass media options. TV reaches 67% of urban consumers and 35% of rural consumers. Alternatives like wall paintings, theatres, video vehicles, special packaging and consumer promotions become an expensive but required activity associated with a successful FMCG. 3. Huge Distribution Network - India is home to six million retail outlets, including 2 million in 5,160 towns and four million in 627,000 villages. Super markets virtually do not exist in India. This makes logistics particularly for new players extremely difficult. It also makes new product launches difficult since retailers are reluctant to allocate resources and time to slow moving products. Critical factors for success are the ability to build, develop, and maintain a robust distribution network 4. Competition: Significant Presence of Unorganized Sector - Factors that enable small, unorganized players with local presence to flourish include the following: Basic technology for most products is fairly simple and easily available. The small-scale sector in India enjoys exemption/ lower rates of excise duty, sales tax etc. This makes them more price competitive vis--vis the organized sector. A highly scattered market and poor transport infrastructure limits the ability of MNCs and national players to reach out to remote rural areas and small towns. Low brand awareness enables local players to market their spurious look-alike brands.

From the consumers' perspective:  Frequent purchase  Low involvement (little or no effort to choose the item -- products with strong brand loyalty are exceptions to this rule)  Low price From the marketers' angle:  High volumes  Low contribution margins  Extensive distribution networks  High stock turnover

INDUSTRY STRUCTURE

The structure The Indian FMCG sector is the fourth largest sector in the economy and creates employment for three million people in downstream activities. Within the FMCG sector, the Indian food processing industry represented 6.3 per cent of GDP and accounted for 13 per cent of the country's exports in 2003-04. A distinct feature of the FMCG industry is the presence of most global players through their subsidiaries (HLL, P&G, Nestle), which ensures new product launches in the Indian market from the parent's portfolio. Critical operating rules in Indian FMCG sector Heavy launch costs on new products on launch advertisements, free samples and product promotions. Majority of the product classes require very low investment in fixed assets Existence of contract manufacturing Marketing assumes a significant place in the brand building process Extensive distribution networks and logistics are keys to achieving a high level of penetration in both the urban and rural markets Factors like low entry barriers in terms of low capital investment, fiscal incentives from government and low brand awareness in rural areas have led to the mushrooming of the unorganized sector Providing good price points is the key to success

RURAL MARKETS: SMALL IS BEAUTIFUL By the early nineties FMCG marketers had figured out two things Rural markets are vital for survival since the urban markets were getting saturated Rural markets are extremely price-sensitive Thus, a number of companies followed the strategy of launching a wide range of package sizes and prices to suit the purchasing preferences of India's varied consumer segments. Hindustan

Lever, a subsidiary of Unilever, coined the term Nano-marketing in the early nineties, when it introduced its products in small sachets. Small sachets were introduced in almost all the FMCG segments from oil, shampoo, and detergents to beverages. Cola major, Coke, brought down the average price of its products from around twenty cents to ten cents, thereby bridging the gap between soft drinks and other local options like tea, butter milk or lemon juice. It also doubled the number of outlets in rural areas from 80,000 during 2001 to 160,000 the next year, thereby almost doubling its market penetration from 13 per cent to 25 per cent. This along with greater marketing, led to the rural market accounting for 80 per cent of new Coke drinkers and 30 per cent of its total volumes. The rural market for colas grew at 37 per cent in 2002, against a 24 per cent growth in urban areas. The per capita consumption in rural areas also doubled during 2000-02. Exports India is one of the world's largest producers for a number of FMCG products but its exports are a very small proportion of the overall production. Total exports of food processing industry were US$ 2.9 billion in 2001-02 and marine products accounted for 40 per cent of the total exports. Though the Indian companies are going global, they are focusing more on the overseas markets like Bangladesh, Pakistan, Nepal, Middle East and the CIS countries because of the similar lifestyle and consumption habits between these countries and India. HLL, Godrej Consumer, Marico, Dabur and Vicco laboratories are amongst the top exporting companies. Investment in the FMCG sector The FMCG sector accounts for around 3 per cent of the total FDI inflow and roughly 7.3 per cent of the total sectoral investment. The food-processing sector attracts the highest FDI, while the vegetable oils and vanaspati sector accounts for the highest domestic investment in the FMCG sector. Source: SIA Newsletter, DIPP

ADVANTAGES TO THE SECTOR: Governmental Policy Indian Government has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reducing excise duties, and automatic foreign in-vestment and food laws resulting in an environment that fosters growth. 100 per cent ex-port oriented units can be set up by government approval and use of foreign brand names is now freely permitted. FMCG SECTOR Central & State Initiatives Recently Government has announced a cut of 4 per cent in excise duty to fight with the slowdown of the Economy. This announcement has a positive impact on the industry. But the benefit from the 4 per cent reduction in excise duty is not likely to be uniform across FMCG categories or players. The changes in excise duty do not impact cigarettes (ITC, Godfrey Phillips), biscuits (Britannia Industries, ITC) or ready-to-eat foods, as these products are either subject to specific duty or are exempt from excise. Even players with manufacturing facilities located mainly in tax-free zones will also not see material excise duty savings. Only large FMCG-makers may be the key ones to bet and gain on excise cut. Foreign Direct Investment (FDI) Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). There is a continuous growth in net FDI Inflow. There is an increase of about 150 per cent in Net Inflow for Vegetable Oils & Vanaspati for the year 2008.

Policy Issues Tax reforms:

The government has gradually removed the restrictions on imports of consumer goods in the country and also significantly reduced custom duties. The domestic tax structure of these products, however, has not been rationalized to provide level playing field for competition. This is adversely affecting the growth of the FMCG industry and could have far reaching adverse impact. The following taxation issues need urgent attention of the government: 1) Extremely high incidence of tax on certain product categories Some FMCG products such as shampoos, processed food, soft drinks and toiletries containing alcohol attract high rates of excise duty and sales tax. The total tax incidence in some cases is more than 60 per cent of the

cost or more than 30 per cent of MRP. Such high tax incidence hampers growth of these product categories besides encouraging manufacture of spurious products and smuggling. It is recommended that the total excise incidence of FMCG products should not exceed 16 per cent in the case of non food items and eight per cent in the case of processed foods. Similarly, the marginal rates of sales tax, which is currently in the range of 10 to 25 per cent, should not exceed 12 per cent. 2) Irrational domestic tax structure encouraging imports significant reduction in custom duty rates of consumer goods has made imported product cheaper as compared to indigenously manufactured products, due to irrational domestic tax structure. For instance, goods manufactured in India suffer from cascading effects of taxes on inputs as additional cost compared to imports. The cascading effect of sales tax and local levies on inputs used in domestic manufacture should be eliminated by providing either MODVAT credit or by introducing notional VAT covering both central and state taxes on an urgent basis. Moreover, MRP-based excise duty is levied on a large number of FMCG products. Countervailing duty on the same product when imported is charged on CIF value. The MRP based assessable value for excise duty does not allow abatement for post manufacturing costs such as advertising and selling expenses whereas CIF value considered for the purpose of import duty does not include costs of these elements incurred subsequently by importers. This differential basis creates unfair competition as tax incidence on domestic manufacture could be considerably higher in case of those products which incur significant marketing and distribution cost. There is a need to bring parity in tax incidence between domestic manufacture and imports by including all such elements of post manufacturing costs while deciding the abatement percentage of MRP based duty. 3) Inverted Duty structure for selected inputs Duty on certain raw materials is higher or the same as compared to finished products in which these materials are used. Such raw materials include oils and chemicals like Soda ash, caustic soda and LAB. In addition to customs duty, raw materials are also subject to SAD/sales tax and octroi and therefore total tax incidence and cost of indigenous manufacture goes up. The import duty on raw materials needs to be rationalized so that it does not exceed 60 to 70 per cent of the duty on finished goods. 4) Need for rationalization of taxes on processed foods processed food industry, with its vertical integration with the agricultural sector has significant potential for employment generation and economic growth. The existing tax structure and its high overall incidence, however, have been hampering the growth of the processed industry. The increase in excise duty in last years budget from eight per cent to 16 per cent has adversely affected the growth of processed foods industry. It is recommended that marginal rate of excise duty on processed foods should not be more than eight per cent and the sales tax should be levied at four per cent. 5) Cascading effect of Special Excise Duty The special excise duty introduced last year is not "Convictable except in the case of selected products. Most FMCG products covered by tariff such as shampoos, ice creams and cosmetics are subject to SED. This tariff also contains very

wide definition of the term "manufacture which includes labeling, relabeling or conversion of large packs into small packs. The levy of SED on such products therefore leads to double taxation when goods are labeled or converted into small packs after manufacture. It is recommended that SED should be made "Convictable; alternatively the term "manufacture needs modification, at least for the purpose of SED by excluding labeling, relabeling or conversion into small packs. FDI Policy Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). 24 per cent foreign equity is permitted in the small scale sector. Temporary approvals for imports for test marketing can also be obtained from the Director General of Foreign Trade. The evolution of a more liberal FDI policy environment in India is clearly supported by the successful operation of some of the global majors like PepsiCo in India. Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes. Typical characteristics of FMCG products are: 1. The products often cater to 3 very distinct but usually wanted for aspects - necessity, comfort, luxury. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers. 2. Individual items are of small value (small SKU's) although all FMCG products put together account for a significant part of the consumer's budget. 3. The consumer spends little time on the purchase decision. He seldom ever looks at the technical specifications. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions. 4. Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently, as and when required. 5. Brand switching is often induced by heavy advertisement, recommendation of the retailer or word of mouth.

INDUSTRY ANLYSIS
Products often cater to 3 distinct but usually wanted for aspects like necessity, comfort, luxury. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers. Individual items are of small value (small SKU's) although all FMCG products put together account for a significant part of the consumer's budget. The consumer spends little time on the purchase decision. He seldom ever looks at the technical specifications. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions. Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently, as and when required. Brand switching is often induced by heavy advertisement, recommendation of the retailer or word of mouth.

INDUSTRY ENVIRONMENT
FMCG ENVIRONMENT While the pace of the FMCG industry may be quick, its a rewarding environment where ambition can take you a long way. Forget conventional thinking To succeed in FMCG, its important to think fast and outside the norms of conventional thinking. You should be constantly curious, up-to-speed with whats going on in your profession and with a thirst for finding out more. Be competitive Your competitive edge will really come into play when working in FMCG. Youll strive to achieve the best results, but not at the expense of teamwork. Your competitive drive should be focused on pulling together to drive the business forward. Adapt to change As the FMCG market changes so quickly, youll have to be ready to adapt to change too, helping your company transform with speed and precision. Seek out responsibility FMCG encourages you to speak out and to take ownership of your ideas as well as your career. All contributions are valid and important, no matter what level employee you are. Hit the ground running and youll have the freedom to progress your career and to push your ideas. Add to all this the exciting international setting that the majority of FMCG companies work within, and you'll begin to see just how much a career in FMCG has to offer.

COMPETITIVE ANALYSIS

Porter's Five Forces Model:

Rivalry among Competing Firms: In the Fast Moving Consumer Goods (FMCG) Industry, rivalry among competitors is very fierce. There are scarce customers because the industry is highly saturated and the competitors try to snatch their share of market. Market Players use all sorts of tactics and activities from intensive advertisement campaigns to promotional stuff and price wars etc. Hence the intensity of rivalry is very high. The intensity of rivalry is very high among the competitor of FMCG Industry. Potential Entry of New Competitors: FMCG Industry does not have any measures which can control the entry of new firms. The resistance is very low and the structure of the industry is so complex that new firms can easily enter and also offer tough competition due to cost effectiveness. Hence potential entry of new firms is highly viable. There is a threat for new entrants as well as for substitute.

Potential Development of Substitute Products: There are complex and never ending consumer needs and no firm can satisfy all sorts of needs alone. There are plenty of substitute goods available in the market that can be re-placed if consumers are not satisfied with one. The wide range of choices and needs give a sufficient room for new product development that can replace existing goods. Every other day there is some short of new product, variants and design. This leads to higher consumers expectation. Bargaining Power of Suppliers: The bargaining power of suppliers of raw materials and intermediate goods is not very high. There is ample number of substitute suppliers available and the raw materials are also readily available and most of the raw materials are homogeneous. There is no monopoly situation in the supplier side because the suppliers are also competing among themselves. Even there is high bargaining power for Suppliers as well as for Buyers. Bargaining Power of Consumers: Bargaining power of consumers is also very high. This is because in FMCG industry the switching costs of most of the goods is very low and there is no threat of buying one product over other. Customers are never reluctant to buy or try new things off the shelf.

INDUSTRY PERFORMANCE

CURRENT SCENARIO The growth potential for FMCG companies looks promising over the long-term horizon, as the per-capita consumption of almost all products in the country is amongst the lowest in the world. As per the Consumer Survey by KSA- Techno Park, of the total consumption expenditure, almost 40% and 8% was accounted by groceries and personal care products respectively. Rapid urbanization, increased literacy and rising per capita income are the key growth drivers for the sector. Around 45% of the population in India is below 20 years of age and the proportion of the young population is expected to increase in the next five years. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and a new mindset. In this backdrop, industry estimates suggest that the industry could triple in value by 2015 (by some estimates, the industry could double in size by 2010). In our view, testing times for the FMCG sector are over and driving rural penetration will be the key going forward. Due to infrastructure constraints (this influences the costeffectiveness of the supply chain); companies were unable to grow faster. Although companies like HLL and ITC have dedicated initiatives targeted at the rural market, these are still at a relatively nascent stage. The bottlenecks of the conventional distribution system are likely to be removed once organized retailing gains in scale. Currently, organized retailing accounts for just 3% of total retail sales and is likely to touch 10% over the next 3-5 years. In our view, organized retailing results in discounted prices, forced-buying by offering many choices and also opens up new avenues for growth for the FMCG sector.

FUTURE OUTLOOK Indian FMCG sector is fourth largest sector in the economy. Over a period of time with growth in GDP, change in lifestyle and with established distribution system across the country this sector is also growing with new market horizons and also seize sustained growth in coming years. Indian FMCG market experienced 16% growth in FY 09-10 and expected to grow by roughly 20% in FY 10-11. In the Industry all the major players are growing consistently. The companies are having almost negligible debt proportion in their balance-sheet. It makes very safe and strong case for anyone to invest. Among heavyweights HUL has strong presence in the Indian FMCG market so one can hold the stock or buy at decline. ITC is still having major part of revenues from cigarette business. Its FMCG business is still in the investment phase. Colgate is the market leader in the oral care segment with consistently holding significant market share in the segment. Dabur is diversifying in to many segments with increasingly adding presence in global market as well. Marico is also the leader in hair care market and aggressively increasing its presence in overseas market organically and inorganically. P&G is increasing penetration in Indian markets especially in health care and feminine hygiene. We believe these stocks can outperform in bearish market scenario. Hence, one should add these stocks in his portfolio, which can give good returns in long term. The Rs. 85,000 crore FMCG market in India is making rapid strides irrespective of the downward economic trend. Increased income and standard of living has been the spearhead in FMCG sector. Consumer mindset has now changed to Value for Money from Money from Value. Relaxed FDI conditions in India have inducted many global players in Indian market. Companies like HUL, Dabur & ITC have outperformed their counter peers in the Indian market due to their consistent class performance and new quality of innovations. Fast moving consumer goods (FMCG) sector in India is one of the largest sectors in the economy with estimated total market size of around Rs 110,000 crore in 2010. The FMCG market in India is expected to reach Rs 1, 80,000 crore by 2015.

Market Share of FMCG Products

Indian FMCG market is strongly supported by a chain of strong MNCs. This sector requires high expenditure on branding. Most companies in the sector create customer value through product differentiation, package innovation, and differential pricing and highlighting the functional aspect of their products. Nano marketing is one of the greatest achievements made by the FMCG industry which has aided the companies to manufacture products in smaller package sizes, at lower price and reach new users from the lower income group as well as to expand market share for value added products in urban area. The trend was introduced by Hindustan Lever, a subsidiary of Unilever in mid 1990s when it started packing products in small sachets. Today, nearly all the products like oil, shampoo, detergents etc are available in sachet form in the market.

New Market for FMCG

India has a high population of approx 350 million from middle class strata. This mass has a potential to create huge demand. With economy expected to grow at 8 % 10 % rate per annum the standard of living and the disposable income of the individuals will increase. Changing lifestyle will put more importance on personal care products .The demands will eventually be directed to the FMCG sector for various FMCG products. The rural class which was unexplored until recently is a great scope. With communication and awareness penetrating the rural arena there is a huge expectation for change in the lifestyle and the necessity of the products in the rural areas. This would bring more market for the FMCG industry

Checkpoints in FMCG Industry

Tapping customer necessity with ease accompanied with the use of technology is the key to FMCG industry. However this sector is boggled due to high production cost. The industry faces a lot of pressure due to any rise in Inflation level. Inflation rate in India as on May, 2011 was 8.72 %.Higher inflation rate can certainly erode the disposable income even in a growing economy. FMCG market has always been against any hike in excise duty levied in consumer goods and services. In Union budget 2011, the base rate on excise duty was increased from 4% to 5 %. An increase in excise duty not only affects the production and distribution cost but also tampers the demand in FMCG sector.

FMCG in International arena

The international economy has led to a rapid pace in demand for FMCG products. The majors top line FMCG products of global market are growing day by day. The consumer goods like soap, shampoo, skin cream, face wash, Make Up items, Lipstick, nail paint and cosmetics are like to bring up a huge market for FMCG Bottled water major Bisleri International on June 8, 2011 said it is looking at entering Middle East countries as part of its strategy to expand its overseas presence. As part of the plan, the company said it will consider setting up more manufacturing facilities outside India.

Vast range of consumable goods offered by the FMCG industry involves a huge amount of money, while the contest among FMCG manufacturers is turning out to be a lot fiercer than ever before. We are witnessing people investing a lot of money into the FMCG industry, especially in United States, where the FMCG industry is by far the largest sector, and is estimated to double for every upcoming year. In New Zealand to add with, the FMCG industry has reported to account for 6% of Gross Domestic Product, what we call as GDP.

Less inclination and time to cook at home implies eating out more often, a trend that is most prevalent in the USA, where meals eaten outside account for almost half of the food budget, nearly double the proportion spent in 1970.Car culture and distances traveled has also spawned the hugely undesirable practice of eating and drinking in cars. In the USA, the car is fast become an integral part of places to eat and drink. According to a University of Michigan research paper, almost 10% of all meals in America are now eaten in a car, but figures as high as 20% have also been quoted. Eating or drinking in a moving vehicle is not very smart, but it is a phenomenon that is occurring with growing frequency. What will also likely grow is the use of the stationary car as a place to eat. Such growing demand presents packaging opportunities for well designed, easy-to-open and dispose of packaging appropriate for the stationary vehicle environment. Innovative packaging designs that allow a one-handed meal that fits easily into a car cup holder to be consumed without creating a mess provides immense ease the customer. These trends are all part of an overall picture of increasingly hectic lifestyles that has created a demand for new food and beverage products packaged in a way that offers user convenience. To meet these challenges, many lightweight, single-serve containers that are easily consumed on-the-go are being developed. Soup is a favorite with packaging designed for on-the-go portability with an easy-open, microwaveable, package that provides a quick meal; a self-heating smart packaging for soup is commercial in the USA. Other examples include grab n go squeezable yogurt in a tube, and fruit to go in single-serve easy peel clear plastic bowls. On the whole the FMCG industry is gearing up for a rapid boom. With quick adaptation to changing lifestyle the demand market will certainly widen and create new avenues in future.

FUTURE TRENDS

Fast moving consumer goods will become an Rs 400,000-crore industry by 2020. A Booz & Company study finds out the trends that will shape its future Consider this. The anti-ageing skincare category grew five times between 2007 and 2008. Its today the fastest-growing segment in the skincare market. Olay, Procter & Gambles premium anti-ageing skincare brand, captured 20 per cent of the market within a year of its launch in 2007 and today dominates it with 37 per cent share. Who could have thought of ready acceptance for anti-ageing creams and lotions some ten years ago? For that matter, who could have thought Indian consumers would take oral hygiene so seriously? Mouth-rinsing seems to be picking up as a habit mouthwash penetration is growing at 35 per cent a year. More so, who could have thought rural consumers would fall for shampoos? Rural penetration of shampoos increased to 46 per cent last year, way up from 16 per cent in 2001. Consumption patterns have evolved rapidly in the last five to ten years. The consumer is trading up to experience the new or what he hasnt. Hes looking for products with better functionality, quality, value, and so on. What he needs is fast getting replaced with what he wants? A new report by Booz & Company for the Confederation of Indian Industry (CII), called FMCG Roadmap to 2020: The Game Changers, spells out the key growth drivers for the Indian fast moving consumer goods (FMCG) industry in the past ten years and identifies the big trends and factors that will impact its future. The report estimates the FMCG sector witnessed robust year-on-year growth of approximately 11 per cent in the last decade, almost tripling in size from Rs 47,000 crore in 2000-01 to Rs 130,000 crore now (it accounts for 2.2 per cent of the countrys GDP). Growth was even faster in the past five years almost 17 per cent annually since 2005. It identifies robust GDP growth, opening up of rural markets, increased income in rural areas, growing urbanization along with evolving consumer lifestyles and buying behaviors as the key drivers of this growth. The report further estimates that the FMCG industry will grow at least 12 per cent annually to become Rs 400,000 crore in size by 2020. Additionally, if some of the factors play out favorably, say, GDP grows a little faster, the government removes bottlenecks such as the goods and services tax (GST), infrastructure investments pick up, there is more efficient spending on government subsidy and so on, growth can be significantly higher. It could be as high as 17 per cent, leading to an overall industry size of Rs 620,000 crore by 2020. Says Booz & Company Partner Abhishek Malhotra: The Indian GDP per capita is low but many Indian consumer segments which constitute rather large absolute numbers are either close to or

have already reached the tipping point of rapid growth. The sector is poised for rapid growth over the next 10 years, and by 2020, the industry is expected to be larger, more responsible and more tuned to its customers. Based on research on industry evolutions in other markets and discussions with industry experts and practitioners, Booz & Company has identified some important trends that will change the face of the industry over the next ten years. Some key ones related to evolution of consumer segments are as follows: Accelerating premiumisation

The rising income of Indian consumers has accelerated the trend towards premiumisation or up-trading. The trend can be observed prominently in the top two income groups the rich with annual income exceeding Rs 10 lakh, and the upper middle class with annual income ranging between Rs 5 lakh and Rs 10 lakh. The reports says, the rich are willing to spend on premium products for their emotional value and exclusive feel, and their behaviour is close to consumers in developed economies. They are well-informed about various product options, and want to buy products which suit their style. The upper middle class wants to emulate the rich and up-trade towards higher-priced products which offer greater functional benefits and experience compared to products for mass consumption. While these two income groups account for only 3 per cent of the population, the report estimates that by 2020 their numbers will double to 7 per cent of the total population. The rich will grow to approximately 30 million in 2020, which is more than the total population of Sweden, Norway and Finland put together. Similarly, the upper middle segment will be a population of about 70 million in 2020, which is more than the population of the UK. Over the next ten years, these groups will constitute large enough numbers to merit a dedicated strategy by FMCG companies. We have seen companies focused on selling primarily to the mid segments. Often, there is no clear segmentation being offered. Players will do well to clearly separate their offerings for the upper and mid segments, says Malhotra and adds that the two should be treated as separate businesses with a dedicated team and strategy for each.

Evolving categories

Categories are evolving at a brisk pace in the market for the middle and lower-income segments. With their rising economic status, these consumers are shifting from need- to want-based products. For instance, consumers have moved from toothpowders to toothpastes and are now also demanding mouthwash within the same category. Also, the report notes, consumers have started demanding customized products, specifically tailored to their individual tastes and needs. The complexities within the categories are increasing significantly. Earlier a shampoo used to have two variants normal and antidandruff. Now, you have anti-dandruff shampoos for short hair, oily hair, curly hair, and so on. Every thing is getting customized, says Malhotra. The trend towards mass-customization of products will intensify with FMCG players profiling the buyer by age, region, personal attributes, ethnic background and professional choices. Microsegmentation will amplify the need for highly customized market research so as to capture the specific needs of the consumer segment targeted, before the actual product design phase gets underway. The beauty products market will grow by 20 per cent per annum as result of the changing socioeconomic status of consumers, especially women. Middle-class women are now more conscious of their appearance and are willing to spend more on enhancing it. Products such as colour cosmetics (growing by 46 per cent) and sun care products (growing at 13 per cent) have latched on to this trend rapidly. Value at the bottom

Booz defines the bottom-of-the-pyramid or BoP consumers as those who earn less than Rs 2 lakh per annum per household. The group constitutes about 900 to 950 million people. While the middle class segment is largely urban, already well-served and competitive, the BoP markets are largely rural, poorly-served and uncompetitive. A lot of the basic needs of BoP consumers are yet unmet: Financial services, mobile phones & communication, housing, water, electricity and basic healthcare. And so there is untapped opportunity. Malhotra says, The aspiration was always there, and increasingly money is coming in. The segment is being targeted primarily with lower-priced products, say, an Rs 2 Parle-G. But increasingly it will need products that deliver more value say, an Rs 5 product that serves as dinner and also delivers nutrition (vitamins, proteins etc). Companies like PepsiCo and Tata are working on such products.

The report says the rural BoP population is estimated to be about 78 per cent of the total BoP population. The segment is becoming an important source of consumption by moving beyond the survival mode. As a result of rising incomes, the growth of FMCG market in rural areas at 18 per cent a year has exceeded that of the urban markets at 12 per cent. While the rural market comprises only 34 per cent of the total FMCG market, given the current growth rates, its contribution is expected to increase to 45-50 per cent by 2020. It will require tailored products at highly affordable prices with the potential of large volume supplies. Products such as fruit juices and sanitary pads which had no demand in the rural markets earlier have suddenly started establishing their presence. While most FMCG players have succeeded in establishing sufficient access to their products in rural areas, the next wave of growth is expected to come from increasing category penetration, development of customized products and uptrading rural consumers towards higher-priced and better products. Another big trend that has been the highlight of the study is the emerging idea of many Indias. The report says that despite the complexities of language, culture and distances, the Indian market has largely been seen as a homogenous market. Theres one product for the entire country the same Maggi noodles for Karnataka and West Bengal, or the same Diet Coke for Punjab and Assam. Besides, these products have the same advertisements that run across the country. Increasingly, FMCG players are realizing that India is not a homogenous market and consumer preferences vary significantly. By 2020, Maharashtras GDP will exceed that of Greece, Belgium, and Switzerland, and Uttar Pradeshs economic size will exceed that of Singapore and Denmark. So, having a dedicated firm for Maharashtra or Gujarat can prove to be a realistic and profitable proposition. We will see companies coming up with regional products. Hindustan Unilever has teas which are very different in one state versus the other. Pepsi has a different product in Andhra Pradesh which is not sold anywhere else. Differentiation used to happen at the country level; now you will see at the state level, says Malhotra. FMCG players need to grow regional in their thinking and move towards an increasingly decentralized operating model in India. As consumer preferences differ across regions and states, companies may follow a regional strategy in terms of product ingredients, positioning, marketing campaign, and channels. Overall, decentralization or regionalization will become an increasingly important theme for FMCG players.
SOURCE: BUSINESS STANDARD

COCA COLA

COMPANY HISTORY
The Coca-Cola Company re-entered India through its wholly owned subsidiary, Coca-Cola India Private Limited and re-launched Coca-Cola in 1993 after the opening up of the Indian economy to foreign investments in 1991. Since then its operations have grown rapidly through a model that supports bottling operations, both company owned as well as locally owned and includes over 7,000 Indian distributors and more than 1.3 million retailers. Today, our brands are the leading brands in most beverage segments. The Coca-Cola Companys brands in India include Coca-Cola, Fanta Orange, Fanta Apple, Limca, Sprite, Thums Up, Burn, Kinley, Maaza, Maaza Milky Delite, Minute Maid Pulpy Orange, Minute Maid Nimbu Fresh and Nestea Iced tea, the Georgia Gold range of teas and coffees and Vitingo (a beverage fortified with micro-nutrients). In India, the Coca-Cola system comprises of a wholly owned subsidiary of The Coca-Cola Company namely Coca-Cola India Pvt Ltd which manufactures and sells concentrate and beverage bases and powdered beverage mixes, a Company-owned bottling entity, namely, Hindustan Coca-Cola Beverages Pvt Ltd; thirteen authorized bottling partners of The Coca-Cola Company, who are authorized to prepare, package, sell and distribute beverages under certain specified trademarks of The Coca-Cola Company; and an extensive distribution system comprising of our customers, distributors and retailers. Coca-Cola India Private Limited sells concentrate and beverage bases to authorized bottlers who are authorized to use these to produce our portfolio of beverages. These authorized bottlers independently develop local markets and distribute beverages to grocers, small retailers, supermarkets, restaurants and numerous other businesses. In turn, these customers make our beverages available to consumers across India. The Coca-Cola Company has invested nearly USD 1.1 billion in its operations in India since its re-entry back into India in 1992. The Coca-Cola system in India directly employs over 25,000 people including those on contract. The system has created indirect employment for more than 1, 50,000 people in related industries through its vast procurement, supply and distribution system. We strive to ensure that our work environment is safe and inclusive and that there are plentiful opportunities for our people in India and across the world. The beverage industry is a major driver of economic growth. A National Council of Applied Economic Research (NCAER) study on the carbonated soft-drink industry indicates that this industry has an output multiplier effect of 2.1. This means that if one unit of output of beverage is increased, the direct and indirect effect on the economy will be twice of that. In terms of employment, the NCAER study notes that an extra production of 1000 cases generates an extra employment of 410 man days.

As a Company, our products are an integral part of the micro economy particularly in small towns and villages, contributing to creation of jobs and growth in GDP. Coca-Cola in India is amongst the largest domestic buyers of certain agricultural products. As an industry which has strong backward and forward linkages, our operations catalysis growth in demand for products like glass, plastic, refrigeration, transportation, and Industrial and agricultural products. Our operations also lead to incremental growth for enterprises engaged in post production activities like merchandising, marketing and sales. In addition, we share best practices and technological advancements with our suppliers, vendors and allied industries which often lead to improvement in the overall standards of quality across industries. The Coca-Cola Company has always placed high value on good citizenship. Our basic proposition entails that our Companys business should refresh the market; enrich the workplace; protect and preserve the environment; and strengthen the community. We leverage our unique strengths to actively support and respond to local needs -- be it the need for education, health, water or nutrition. We have used our distribution network for disaster relief, our marketing prowess to raise awareness on issues such as PET recycling, and our presence in communities to improve access to education and potable water. The Coca-Cola India Foundation is now taking forward in the community at large, projects and programs of social relevance to carry forward the message of inclusive growth and development.

COCA COLA SYSTEM WORLD WIDE AND IN INDIA

At the core of our business in India, as in the rest of the world is our production and distribution network, which we call the Coca-Cola system. Globally, the Coca-Cola system includes our Company and more than 300 bottling partners. The Coca-Cola Company manufactures and sells concentrate and beverage bases. Our authorized bottlers combine our concentrate or beverage bases as the case may be with sweetener (depending on the product), water or carbonated water to produce finished beverages. These finished beverages are packaged in authorized containers bearing our trademarks -- such as cans, refillable glass bottles, non-refillable PET bottles and tetra packs -- and are then sold to wholesalers or retailers. In India, additionally, the Company also sells certain powdered beverage mixes such as Vitingo and Fanta Fun Taste. Our beverages reach our ultimate consumers through our customers: the grocers, small retailers, hypermarkets, restaurants, convenience stores and millions of other businesses that are the final points of distribution in the Coca-Cola system. What truly defines the Coca-Cola system, and indeed what makes it unique among businesses, is our ability to create value for our customers and consumers. In India, the Coca-Cola system comprises of a wholly owned subsidiary of The Coca-Cola Company namely Coca-Cola India Pvt Ltd which manufactures and sells concentrate and beverage bases and powdered beverage mixes, a Company-owned bottling entity, namely,

Hindustan Coca-Cola Beverages Pvt Ltd; thirteen authorized bottling partners of The Coca-Cola Company, who are authorized to prepare, package, sell and distribute beverages under certain specified trademarks of The Coca-Cola Company; and an extensive distribution system comprising of our customers, distributors and retailers. Coca-Cola India Private Limited sells concentrate and beverage bases to authorized bottlers who are authorized to use these to produce our portfolio of beverages. These authorized bottlers independently develop local markets and distribute beverages to grocers, small retailers, supermarkets, restaurants and numerous other businesses. In turn, these customers make our beverages available to consumers across India.

HISTORY OF BOTTLING
1950 1958 1973 1977 1992 Coca-Cola bottling plant opens in New Delhi Concentrate plant opens in India 22 bottling plants operate in 13 states Coca-Cola and 38 other companies refuse to dilute stake, formally withdraws from Country in 1978 Re-enters India

MISSION, VISION AND VALUES

The world is changing all around us. To continue to thrive as a business over the next ten years and beyond, we must look ahead, understand the trends and forces that will shape our business in the future and move swiftly to prepare for what's to come. We must get ready for tomorrow today. That's what our 2020 Vision is all about. It creates a long-term destination for our business and provides us with a "Road map" for winning together with our bottling partners. Mission Our Road map starts with our mission, which is enduring. It declares our purpose as a Company and serves as the standard against which we weigh our actions and decisions. y To refresh the world... y To inspire moments of optimism and happiness... y To create value and make a difference Vision Our vision serves as the framework for our Road map and guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable, quality growth. y People: Be a great place to work where people are inspired to be the best they can be y Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy peoples desires and needs

Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value y Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities y Profit: Maximize long-term return to share owners while being mindful of our overall responsibilities y Productivity: Be a highly effective, lean and fast-moving organization Winning Culture Winning Culture defines the attitudes and behaviors that will be required of us to make our 2020 Vision a reality. Live Our Values The values serve as a compass for our actions and describe how we behave in the world. y Leadership: The courage to shape a better future y Collaboration: Leverage collective genius y Integrity: Be real y Accountability: If it is to be, its up to me y Passion: Committed in heart and mind y Diversity: As inclusive as our brands y Quality: What we do, we do well Focus on the Market y Focus on needs of our consumers, customers and franchise partners y Get out into the market and listen, observe and learn y Possess a world view y Focus on execution in the marketplace every day y Be insatiably curious Work Smart y Act with urgency y Remain responsive to change y Have the courage to change course when needed y Remain constructively discontent y Work efficiently Act Like Owners y Be accountable for our actions and in actions y Steward system assets and focus on building value y Reward our people for taking risks and finding better ways to solve problems y Learn from our outcomes -- what worked and what didnt Be the Brand y Inspire creativity, passion, optimism and fun
y

PRODUCT LIST
Coca-Cola Diet Coke Thums Up Sprite Fanta Limca Maaza Maaza Milky Delite Minute Maid Pulpy Orange Minute Maid Nimbu Fresh Burn Kinley Water Kinley Soda Nestea Schweppes GEORGIA Gold

PRODUCT SAFETY AND QUALITY

The global nature of our business requires that the Coca-Cola system has the highest standards and processes for ensuring consistent product safety and quality from our concentrate production to our bottling and product delivery. We measure key product and package quality attributes to ensure our beverage products in the marketplace meet Company requirements and consumer expectations. Consistency and reliability are critical to our product quality and to meeting global regulatory requirements and Company standards.

PORTERS FIVE FORCE MODEL FOR COCA COLA

Porters five forces model is a framework for the industry analysis and development of business strategy. Three of porters five forces refers to rivalry from external/outside sources such as micro environment, macro environment and rest are internal threats. It draws ahead industrial organization economics to develop five forces that conclude the competitive intensity and consequently attractiveness of a market place or industry. Attractiveness in this framework refers to the generally overall industry profitability. An unattractiveness in industry is one in which the mixture of these five forces proceed to constrain behind overall profitability. An extremely unattractive industry would be one moving toward pure competition in which existing profits for all companies are moving down to zero.